Balancing the Estate Books

The executor thought the estate accounts would be simple.

There had been a house, two bank accounts and three beneficiaries. The house sold for more than its initial valuation, so the executor assumed the final calculation would be straightforward: add the money, subtract the bills and divide what remained.

Then the details began piling up.

Interest had accumulated after the date of death. The empty house had generated rates, insurance and maintenance costs. One beneficiary had already received a specific cash gift. Another had been given an interim distribution. The executor had personally paid several urgent invoices and needed reimbursement. Legal fees were still being finalised, and the estate’s tax return had not yet been completed.

The estate was not difficult because the arithmetic was advanced. It was difficult because every figure needed to be classified, supported and connected to the will.

Estate accounting is the process of turning months of administration into a clear financial story. It should show what the deceased owned, what the executor collected, what income arose, what was paid and how the final balance was distributed.

When the accounts are prepared properly, beneficiaries can understand their inheritance without having to reconstruct the estate from scattered bank statements and unanswered questions.

## Estate Accounting Begins on the First Day

Final accounts should not be created from memory after the estate has already been distributed.

The executor should begin recording information as soon as they take responsibility for the deceased’s affairs.

Create a central accounting file containing:

– An asset register
– A liability register
– An estate transaction ledger
– Copies of bank statements
– Valuations
– Invoices and receipts
– Tax documents
– Property-sale records
– Beneficiary entitlements
– Interim distribution records
– Executor reimbursements
– Notes explaining significant decisions

The executor’s broader task includes identifying and collecting all estate property, including assets held overseas. That investigation may require contact with financial institutions, insurers, investment registries and other organisations. citeturn222092search22

Without a central system, figures can easily be omitted, counted twice or placed in the wrong category.

## Separate Capital From Income

One of the most important accounting distinctions is the difference between estate capital and estate income.

### Capital

Capital generally represents the property the deceased owned or the money produced when that property is collected or sold.

Examples include:

– Bank balances existing at death
– House-sale proceeds
– Investment capital
– Vehicles
– Business interests
– Insurance proceeds payable to the estate
– Money owed to the deceased

### Income

Income is generally money generated by estate property during administration.

Examples include:

– Bank interest earned after death
– Dividends received by the estate
– Rent collected from an estate property
– Business income
– Interest on money owed to the deceased

The distinction matters because income may create tax obligations and may affect beneficiary entitlements under the will.

New Zealand estates are taxed on income they generate. An estate that earns taxable income may need to file an estate or trust income tax return. citeturn222092search15turn222092search0

Do not place every receipt under one heading labelled “estate money.” The accounts should explain where the money came from and when it arose.

## Record Date-of-Death Values

The executor should prepare an initial schedule showing the estate’s assets and their values at the date of death.

For each asset, record:

– Description
– Ownership
– Institution or location
– Date-of-death value
– Source of the valuation
– Amount eventually collected
– Sale or transfer date
– Related costs
– Final destination

The date-of-death value may differ from the amount eventually received.

For example:

| Asset | Date-of-Death Value | Amount Collected |
|—|—:|—:|
| Bank account | $28,750 | $28,920 |
| Investment portfolio | $145,000 | $151,400 |
| House | $760,000 | $785,000 |

Those differences are not automatically accounting mistakes.

The bank account may have earned interest. Investments may have changed in value. The property may have sold above its valuation.

The accounts should show the movement rather than replacing the original figure with the final amount.

## Confirm What Actually Belongs to the Estate

Not every asset connected with the deceased belongs in the estate accounts.

Potential complications include:

– Joint bank accounts
– Jointly owned land
– Trust property
– Company property
– Relationship property
– Assets held for another person
– Insurance payable directly to a nominated recipient
– Retirement benefits passing under separate rules

An estate may own shares in a company without owning the company’s bank accounts or vehicles directly.

Similarly, an account used by the deceased may have been held jointly or operated in a trustee capacity.

Record disputed or uncertain assets separately until ownership is established. Do not include the entire value as estate capital merely because the executor has located the paperwork.

## Use a Separate Estate Account

Estate money should be kept separate from the executor’s personal finances.

A dedicated account creates a clean transaction history for:

– Asset collections
– Property-sale proceeds
– Interest
– Rent
– Refunds
– Creditor payments
– Tax
– Professional fees
– Executor reimbursements
– Beneficiary distributions

Each transaction should have a clear description and supporting evidence.

Avoid vague entries such as:

– Transfer
– Costs
– General expenses
– Family payment
– Adjustment

Use descriptions that explain the estate purpose:

– Final electricity invoice for estate property
– Reimbursement of probate filing fee
– Interim distribution to residuary beneficiary
– Rates paid pending property settlement

The statement should be understandable without relying on the executor’s memory.

## Build an Estate Transaction Ledger

The estate ledger is the bridge between bank activity and the final accounts.

Useful columns include:

– Date
– Reference
– Description
– Category
– Money received
– Money paid
– Supporting document
– Executor approval
– Running balance

A simple ledger might appear as follows:

| Date | Description | Money In | Money Out | Category |
|—|—|—:|—:|—|
| 4 February | Balance from savings account | $42,180 | | Capital collected |
| 12 February | House insurance | | $1,240 | Property expense |
| 31 March | Estate account interest | $315 | | Estate income |
| 18 May | Property sale proceeds | $704,500 | | Capital collected |
| 2 June | Interim beneficiary payment | | $100,000 | Distribution |

Reconcile the running balance with the bank regularly.

Do not wait until the end of the estate to discover that the ledger and the account differ by several thousand dollars.

## Categorise Expenses Carefully

Estate expenses should be grouped into meaningful categories.

### Funeral expenses

These may include reasonable funeral, burial or cremation costs.

### Probate and court expenses

These can include filing fees, certified documents and necessary affidavit costs.

### Property expenses

Examples include:

– Rates
– Insurance
– Security
– Repairs
– Cleaning
– Utilities
– Valuation
– Sale costs

### Professional fees

These may include legal, accounting, valuation and tax-preparation costs.

### Creditor payments

Record each confirmed debt separately rather than combining all creditors into one figure.

### Tax

Separate tax paid for the deceased’s final affairs from tax arising from estate income where possible.

### Executor reimbursements

Show genuine expenses personally paid by the executor and later reimbursed.

Clear categories allow beneficiaries to see why the estate’s value changed during administration.

## Distinguish Expenses From Executor Remuneration

An executor may personally pay an invoice before the estate account is available.

If the expense was reasonable and properly incurred for the estate, it may be reimbursed. The records should include:

– The invoice
– Proof of personal payment
– The reason it was incurred
– The date
– The reimbursement transaction

That is different from paying the executor for their time, inconvenience or expertise.

Remuneration requires a proper legal basis, which may arise from the will, an informed agreement, applicable law or a court decision.

Do not place a private payment to the executor under “general expenses” to make it less visible.

The final accounts should distinguish:

– Reimbursement of actual expenditure
– Professional charges
– Executor remuneration

## Account for Property Sales Properly

The sale price of a house is not the amount ultimately available for distribution.

The property section should show:

– Date-of-death value
– Sale price
– Mortgage repayment
– Sale commission
– Legal costs
– Rates adjustment
– Repairs
– Insurance
– Cleaning
– Other settlement deductions
– Net proceeds received

For example:

| Property Accounting | Amount |
|—|—:|
| Gross sale price | $820,000 |
| Mortgage repayment | ($210,000) |
| Sale commission | ($23,500) |
| Legal and settlement costs | ($3,200) |
| Rates adjustment | ($1,100) |
| Net proceeds | $582,200 |

Listing only the sale price can mislead beneficiaries into believing that the estate received money that was actually paid directly at settlement.

Keep the settlement statement and reconcile it with the amount deposited into the estate account.

## Track Estate Income and Tax

Income can arise throughout the administration.

Common examples include:

– Bank interest
– Dividends
– Rent
– Business income
– Foreign income
– Interest on delayed asset payments

Record income according to:

– Source
– Gross amount
– Tax deducted
– Net amount received
– Date
– Relevant income year
– Beneficiary allocation, if any

An estate earning taxable income may need to file an IR6 estate or trust return. The deceased’s final personal return may also need to be completed separately. citeturn222092search0turn222092search41

Do not treat all money received after death as estate income. A bank balance existing at death is capital, even if it is collected months later. Interest earned on that balance after death is income.

Where classification is uncertain, obtain tax advice before finalising beneficiary statements.

## Record Specific Gifts Before Calculating the Residue

A will may leave:

– A fixed cash amount
– A house
– A vehicle
– Jewellery
– Shares
– A collection
– A percentage of the estate
– The remaining estate after other gifts

These gifts must be recorded before the residue is calculated.

Suppose a will leaves:

– $20,000 to one beneficiary
– A vehicle worth $15,000 to another
– The residue equally between two children

The vehicle does not disappear from the accounts because it was transferred rather than sold. It should still appear as an estate asset and as a specific distribution.

A useful entry might show:

| Specific Gift | Value | Recipient | Date Transferred |
|—|—:|—|—|
| Vehicle | $15,000 | Beneficiary A | 8 July |
| Cash legacy | $20,000 | Beneficiary B | 12 July |

The residuary calculation begins only after debts, expenses and specific gifts have been properly addressed.

## Track Interim Distributions Separately

An interim distribution is a partial payment made before final completion.

It should be recorded clearly because it reduces the amount due to that beneficiary later.

For each interim payment, record:

– Beneficiary
– Date
– Amount
– Basis of entitlement
– Executor approval
– Verified bank details
– Reserve retained
– Written notification
– Payment confirmation

For example:

| Beneficiary | Total Final Entitlement | Interim Payment | Final Balance |
|—|—:|—:|—:|
| Beneficiary A | $180,000 | $75,000 | $105,000 |
| Beneficiary B | $180,000 | $0 | $180,000 |

Do not rely on a note saying that someone “received some money earlier.”

Interim payments may be possible where the estate’s assets and liabilities are sufficiently clear, but complicated estates may need to wait until all assets have been gathered. citeturn222092search34

## Retain a Reserve for Unfinished Costs

The amount shown in the bank account is not necessarily available for immediate distribution.

A reserve may be needed for:

– Final tax
– Accounting fees
– Legal invoices
– Property costs
– Unresolved creditor claims
– Bank charges
– Foreign administration costs
– Estate claims
– Uncollected refunds
– Contingencies

The reserve should be based on the estate’s actual risks rather than an arbitrary percentage.

Record:

– Amount retained
– Purpose
– Supporting estimate
– Date for review
– Person approving it

If the reserve later proves excessive, the remaining balance can be paid as a final or supplementary distribution.

It is safer to make a small later payment than to ask beneficiaries to return money after an unexpected liability appears.

## Reconcile Every Account

Reconciliation means confirming that the accounting records match the actual money held.

At regular intervals:

1. Compare the ledger balance with the estate bank statement.
2. Identify unpresented or pending transactions.
3. Check that all interest and fees are recorded.
4. Investigate duplicate or missing entries.
5. Confirm that transfers between estate accounts are not counted as new income.
6. Verify that every beneficiary payment cleared successfully.

At the end of administration:

> Opening estate balance
> plus money received
> minus expenses and distributions
> should equal the remaining bank balance.

Do not insert an unexplained adjustment merely to force the numbers to agree.

A difference of even a small amount should be understood.

## Prepare the Final Estate Statement

The final estate statement should present the administration in a logical sequence.

A clear structure may include:

### Assets at death

List each asset and its original value.

### Assets collected or realised

Show the amount received from account closures, sales and transfers.

### Estate income

List interest, rent, dividends and other income.

### Liabilities and expenses

Show funeral costs, debts, administration expenses, professional fees and tax.

### Specific gifts

Record cash and non-cash gifts transferred under the will.

### Interim distributions

Show amounts already paid to beneficiaries.

### Residue available

Calculate the amount remaining for residuary beneficiaries.

### Final distribution

Show each beneficiary’s final entitlement and payment.

The statement should reconcile with the estate bank account and supporting records.

## Explain Significant Differences

Beneficiaries may compare the final statement with early estimates.

Explain material changes, such as:

– A property sold above or below valuation
– Investments changed in value
– Additional assets were found
– A creditor claim was accepted
– Repairs became necessary
– Tax was higher than expected
– Foreign-exchange movements occurred
– Professional work increased
– A beneficiary received an earlier payment

Do not hide uncomfortable figures among broad categories.

Transparency is more reassuring than presenting an unexplained total.

## Should Beneficiaries Approve the Accounts?

The appropriate process depends on the estate.

Executors commonly provide residuary beneficiaries with final accounts before completing the administration. Beneficiaries may be asked to confirm receipt, acknowledge the calculation or sign a release.

A signed approval can be useful, but it is not a substitute for accurate administration.

Consent may be unreliable where:

– Important information was withheld
– Accounts are misleading
– A beneficiary is a minor
– Someone lacks capacity
– The executor concealed a conflict
– A creditor or claimant remains unpaid
– The estate has not completed its tax obligations

Provide enough detail for beneficiaries to understand the accounts rather than asking them to sign a one-page document containing only the final figure.

## Keep Records After Distribution

Do not destroy the accounting file when the estate account closes.

Retain:

– Final accounts
– Bank statements
– Ledgers
– Tax returns
– Tax assessments
– Sale records
– Invoices and receipts
– Valuations
– Distribution confirmations
– Beneficiary approvals
– Court orders
– Claim settlements
– The will and grant

Tax records generally need to be retained for at least seven tax years, and some core estate records should be preserved for longer. The retention period may need to be extended where a trust continues, a beneficiary is a minor, a dispute occurred or tax remains open.

The executor should preserve records in a secure, readable and backed-up format.

## A Final Accounting Checklist

Before making the final payments, confirm that:

– Every estate asset has been recorded
– Ownership questions are resolved
– Date-of-death values are documented
– All collected amounts appear in the ledger
– Capital and income are distinguished
– Expenses have supporting invoices
– Executor reimbursements are documented
– Property settlements reconcile
– Tax has been addressed
– Creditor claims are resolved
– Specific gifts are recorded
– Interim distributions are deducted
– The reserve is sufficient
– The bank and ledger balances agree
– Final beneficiary calculations follow the will
– Payment details have been verified
– The complete accounting file is backed up

Good estate accounts do not merely produce the right final number. They show how the executor reached it.

When every asset, expense and distribution can be traced, beneficiaries do not have to rely on trust alone. They can see the administration for themselves.

## Frequently Asked Questions

### 1. What should be included in final estate accounts?

They should show the deceased’s assets, amounts collected, estate income, expenses, debts, tax, specific gifts, interim payments and the calculation of each beneficiary’s final entitlement.

### 2. What is the difference between estate capital and income?

Capital generally represents property owned at death or proceeds from that property. Income is money generated during administration, such as interest, dividends or rent. The distinction can affect tax and beneficiary entitlements.

### 3. Must every household item appear in the accounts?

Not every low-value item requires an individual financial entry. Valuable, specifically gifted, sold or disputed property should be identified clearly. Lower-value contents may sometimes be grouped where appropriate.

### 4. How should property-sale proceeds be recorded?

Show the gross price, mortgage repayment, sale expenses, rates adjustments and other deductions, followed by the net amount received by the estate.

### 5. How are executor expenses recorded?

Keep the invoice, proof that the executor personally paid it and evidence of the estate purpose. The reimbursement should appear as a separate estate transaction rather than being hidden within another category.

### 6. Must interim distributions appear in the final accounts?

Yes. Each interim payment should be deducted from that beneficiary’s total entitlement so the accounts show the correct final balance.

### 7. Do beneficiaries have to approve the accounts?

Formal approval is not identical in every estate, but residuary beneficiaries are commonly given the final accounts and may be asked to acknowledge or approve them. Approval does not cure missing information or improper transactions.

### 8. What happens if the accounts do not balance?

The executor should stop final distribution and investigate. Check missing bank fees, interest, duplicated entries, transfers between accounts, unrecorded payments and incorrect beneficiary calculations. An unexplained adjustment should not be used merely to force agreement.